The
purpose of unusual trading patterns is relevant when determining stock market
manipulation the High Court ruled; holding Milford Asset fund manager Mark
Warminger liable on two charges of market manipulation, not liable on eight
further counts.
Mr Warminger was
responsible for active management of $669 million, part of Milford Asset’s $3.5
billion managed for some 20,000 clients. He was held in breach of the Securities
Markets Act by manipulating stock market prices for Fisher & Paykel Healthcare
(FPH) in May 2014 and a2 Milk (ATM) in July 2014. Securities Markets fines have yet to be set.
The High Court was told
NZX market surveillance staff were alerted to Mr Warminger’s trading in June
2014 in what appeared to be attempts to bolster Xero’s price by dominating
trading with small volume orders. It was
alleged this was an attempt to reverse drifting price levels prior to the end
of a trading quarter. Charges of market
manipulation for Xero shares were dismissed by the High Court. There was
insufficient evidence of any purpose behind Mr Warminger’s unusual Xero
trades. He gained no immediate financial
benefit. He stood to receive no performance
bonus for that June month regardless of any alleged manipulation of the Xero
price.
The court was told indicators
of potential market manipulation are: jumps in bid/ask prices; revision of
prices at the next trading session; trading in small volumes especially at the
end of a trading session and uneconomic trading. Manipulative tactics include “wash sales”
where contemporaneous buy and sell orders are placed to give a false impression
of genuine market interest and “ramping” where low volume deals are done at
successively higher prices to create an aura of demand. By world standards, NZX is a very small
relatively illiquid market. Lack of
liquidity makes it more susceptible to manipulation.
Evidence was given that
Mr Warminger placed a series of small volume buy orders for FPH shares on 27
May 2014 in just four minutes. Justice
Venning ruled that this was done in the knowledge that a buyer was about to
enter the market looking for 450,000 FPH shares and the buy orders were
intended to drive up the market price enabling Milford Asset to reduce its
overweight position in FPH at a better price.
Mr Warminger was also
held liable in respect of trades in ATM on 9 July 2014. Milford Asset was heavily overweight in ATM
stock which had been trading at $0.97 six months previously and was then down
to $0.69. There was evidence of Mr
Warminger turning down off-market offers of substantial parcels in ATM at $0.68
while buying smaller volumes on market at $0.70. Justice Venning ruled this uneconomic trading
was market manipulation, an attempt to ramp ATM’s price.
FMA
v. Warminger – High Court (3.03.17)
17.028